Q1 2020 EARNINGS CALL | May 8 th , 2020 DOMTAR CORPORATION FIRST QUARTER 2020 EARNINGS CALL May 8 th , 2020 (All financial information is in U.S. dollars, and all earnings per share results are diluted, unless otherwise noted.)
Q1 2020 EARNINGS CALL | May 8 th , 2020 SAFE HARBOR Forward-Looking Statements All statements in this presentation that are not based on historical facts are “forward-looking statements.” While management has based any forward-looking statements on its current expectations, the information on which such expectations are based may change. Actual results may differ materially from those suggested by these statements for a number of reasons, including the COVID-19 pandemic and the resulting decrease in paper sales and the challenges we face in maintaining manufacturing operations, changes in customer demand and pricing, changes in manufacturing costs, including facility closings, future acquisitions and divestitures. Risk Factors For a summary of the risk factors, please refer to Domtar’s Annual Report on Form 10-K for the year ended December 31, 2019 filed with the Securities and Exchange Commission and as updated by subsequently filed Form 10-Q’s. Non-GAAP Financial Measures This presentation refers to non-GAAP financial information. For a reconciliation to GAAP financial measures, please refer to the investors section of the company’s website at http://www.domtar.com (Refer to Earnings in the Investor Relations section of the website). 2
Q1 2020 EARNINGS CALL | May 8 th , 2020 COVID-19 RESPONSE PLAN EMPLOYEES, CUSTOMERS AND COMMUNITY Formed a pandemic committee at the onset of the crisis to develop and implement safety protocols Established work from home protocols, travel bans, modifying work practices to maintain social distancing Several facilities making important donations to help local hospitals and healthcare workers combat the pandemic LIQUIDITY AND BALANCE SHEET Completed a $300 million, five-year term loan to increase liquidity Reduce planned 2020 capital expenditures by nearly 40% Reduce planned 2020 maintenance spending by $40 million Actions to manage working capital, reduce operating costs, discretionary spending & SG&A Suspension of share repurchases and quarterly dividends OPERATIONS Announced temporary closure of paper machines at Kingsport, TN, Ashdown, AR and Hawesville, KY, impacting 227,000 short tons Continue to closely monitor customer orders and backlogs, and will adjust capacity accordingly 3
Q1 2020 EARNINGS CALL | May 8 th , 2020 FINANCIAL HIGHLIGHTS First Quarter 2020 Net income of $0.09 per share EBITDA before items * of $95 million Cash flow from operating activities of $88 million Capital expenditures of $62 million Free cash flow * of $26 million Dividend payout of $26 million Repurchased 1.8 million shares for $59 million *Non-GAAP financial measure. Refer to reconciliation available at www.domtar.com (refer to Earnings in the Investor Relations section of the website) 4
Q1 2020 EARNINGS CALL | May 8 th , 2020 EARNINGS STATEMENT 1Q’20 vs. 4Q’19 (in millions of dollars) 4Q’19 1Q’20 Sales 1,244 1,278 Cost of sales 1,053 1,083 Depreciation and amortization 74 72 Mark-to-market of stock based SG&A 112 102 compensation Closure and restructuring costs 19 - Other operating loss, net 1 2 Operating income (loss) (15) 19 Interest expense, net 14 14 Non-service components of net periodic benefit cost Pension plan buy-out in 4Q’19 30 (4) Income tax expense (benefit) (26) 3 Equity loss, net of taxes 1 1 Net earnings (loss) (34) 5 5
Q1 2020 EARNINGS CALL | May 8 th , 2020 CASH FLOW STATEMENT 1Q’20 vs. 1Q’19 (in millions of dollars) 1Q’19 1Q’20 Net earnings 80 5 Depreciation and amortization 73 72 Deferred income taxes and tax uncertainties (3) 1 Impairment of long-lived assets 10 - Changes in assets and liabilities Changes in working capital (122) 18 Pension contribution over expense 1 (1) Other 16 (7) Cash flows from operating activities 55 88 Additions to PP&E (46) (62) Cash flows used for investing activities (46) (62) Dividend payments and stock repurchases (27) (85) Changes in borrowings 3 155 Other (1) (3) Cash flows provided from (used for) financing activities (25) 67 6
Q1 2020 EARNINGS CALL | May 8 th , 2020 EBITDA BEFORE ITEMS * 1Q’20 vs. 4Q’19 ( in millions of dollars) 2 3 6 9 10 (11) 15 (10) Chemicals: 3 (7) Fiber: 2 Personal Care: 2 Energy: (1) Pulp: (6) Paper: (4) 95 78 4Q'19 Productivity Volume/mix SG&A Raw materials Freight FX Other Selling prices Maintenance 1Q'20 *Non-GAAP financial measure. Refer to reconciliation available at www.domtar.com (refer to Earnings in the Investor Relations section of the website) 7
Q1 2020 EARNINGS CALL | May 8 th , 2020 PULP AND PAPER SEGMENT (in millions of dollars) 1Q’20 vs. 4Q’19 vs. 1Q’19 11% Sales $1,031 EBITDA before items * $66 $1 $139 Inventory reduction of 30,000 tons in 1Q and 21% since 2Q 2019 in paper Lockdown of schools, offices, retailers and other business sectors led to reduction of orders in April Pulp shipments steady in 1Q, despite some logistical challenges and a major shutdown of operations in China due to COVID-19 Announced price increases for several softwood and fluff pulp grades in April and May *Non-GAAP financial measure. Refer to reconciliation available at www.domtar.com (refer to Earnings in the Investor Relations section of the website) 8
Q1 2020 EARNINGS CALL | May 8 th , 2020 PULP AND PAPER SEGMENT PAPER (in millions of dollars ) 1Q’20 vs. 4Q’19 vs. 1Q’19 2% 9% Sales $773 $5 EBITDA before items * $100 $56 1Q’20 vs. 4Q’19 vs. 1Q’19 Shipments 4% 8% 679 (manufactured, in thousands of short tons) $6 Transaction prices $17 (US$ / ton – net, all regions) *Non-GAAP financial measure. Refer to reconciliation available at www.domtar.com (refer to Earnings in the Investor Relations section of the website) 9
Q1 2020 EARNINGS CALL | May 8 th , 2020 PULP AND PAPER SEGMENT PULP (in millions of dollars) 1Q’20 vs. 4Q’19 vs. 1Q’19 Sales 15% 5% $258 (incl. intersegment sales) $4 $83 EBITDA before items * ($34) 1Q’20 vs. 4Q’19 vs. 1Q’19 Shipments 4% 389 11% (in thousands of ADMT) Transaction prices $13 $188 (US$ / ADMT – net, all regions) As a result of changes in our organization structure, we have changed our segment reporting. Starting January 1, 2020, our materials business EAM, a manufacturer of high quality airlaid and ultrathin laminated cores, previously reported under our Personal Care segment is now presented under our Pulp and Paper segment. Prior period segment results have been restated to the new segment presentation with no significant impact on segment results. * Non-GAAP financial measure. Refer to reconciliation available at www.domtar.com (refer to Earnings in the Investor Relations section of the website) 10
Q1 2020 EARNINGS CALL | May 8 th , 2020 PULP AND PAPER SEGMENT INVENTORIES PAPER PULP (Sequential variations in thousands of tons) (Sequential variations in thousands of metric tons) 34 22 24 24 17 17 15 (2) (7) (9) (15) (15) (26) (19) (30) (36) 2Q'18 3Q'18 4Q'18 1Q'19 2Q'19 3Q'19 4Q'19 1Q'20 2Q'18 3Q'18 4Q'18 1Q'19 2Q'19 3Q'19 4Q'19 1Q'20 11
Q1 2020 EARNINGS CALL | May 8 th , 2020 PERSONAL CARE SEGMENT (in millions of dollars) 1Q’20 vs. 4Q’19 vs. 1Q’19 Sales $266 11% 14% EBITDA before items * $34 $7 $13 Same Currency Sales (@ 4Q’19 FX rate) $266 14% - Same Currency Sales (@ 1Q’19 FX rate) $269 - 13% Record sales and EBITDA quarter Significant shipments to support consumer stock-up in preparation for in-home quarantine Good performance in several areas including the scale-up of new customer wins EBITDA margin for the quarter finished at 13%, a 130-basis-point improvement versus the prior quarter * Non-GAAP financial measure. Refer to reconciliation available at www.domtar.com (refer to Earnings in the Investor Relations section of the website) 12
Q1 2020 EARNINGS CALL | May 8 th , 2020 MAINTENANCE COSTS (in millions of dollars) 150 135 128 129 117 124 115 112 106 100 100 1Q 2Q 3Q 4Q 2019 Actual 2020 Actual/ Estimate Total maintenance costs includes planned maintenance, maintenance over $100k outside of planned shutdown period, and day-to-day maintenance expenses in Pulp and Paper 13
Q1 2020 EARNINGS CALL | May 8 th , 2020 MANAGEMENT’S FINANCIAL ASSUMPTIONS 2020 REVISION (in millions of dollars) 2020 Variation Revised Previous Maintenance costs $485-495 $445-455 CAPEX $230-260 $140-150 Interest expense $57-60 $60-62 Income tax rate 20-22% 17-19% 14
Q1 2020 EARNINGS CALL | May 8 th , 2020 DELIVERING ESSENTIAL PRODUCTS TO CUSTOMERS WORLDWIDE MAKING LIFE BETTER EVERY DAY PAPER PULP PERSONAL CARE 15
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